Advance Payment in ERPNext
An Advance Payment is a payment received from a customer or paid to a supplier before an invoice is created. Advance payments are commonly used in high-value transactions where a partial payment is required before goods are manufactured, delivered, or services are provided.
For example, a customer places an order worth ₹24,000 for custom furniture and pays ₹10,000 upfront before production begins. This amount is recorded as an advance payment.
Any Payment Entry that is not linked to a Sales Invoice or Purchase Invoice is automatically treated as an Advance Payment in ERPNext.
In ERPNext, advance payments are recorded using the Payment Entry document and can later be allocated against invoices.
1. Prerequisites
Before creating an Advance Payment Entry, ensure the following records are available:
- Customer or Supplier
- Payment Account (Bank or Cash Account)
- Sales Order or Purchase Order (Optional)
2. Creating an Advance Payment Entry
Advance payments can be created directly from a Sales Order or Purchase Order, or manually through a Payment Entry.
Follow these steps:
- Open the Sales Order or Purchase Order.
- Click Make > Payment Entry.
- Verify the party and payment accounts.
- Enter the advance payment amount.
- Save and Submit the Payment Entry.
You can also create a standalone Payment Entry and manually select the customer, supplier, and payment account details.
If the payment is not linked to an invoice, ERPNext automatically records it as an advance against the customer or supplier.
3. Accounting Impact of Advance Payments
When an advance payment is received from a customer:
- The Customer Receivable Account is credited.
- The Company’s Cash or Bank Account is debited.
For example, if a customer pays ₹5,000 in advance:
- ₹5,000 is credited to the customer’s receivable account.
- ₹5,000 is debited to the company’s cash or bank account.
This follows the principles of double-entry accounting.
4. Allocating Advance Payment to an Invoice
Once an invoice is created, the previously received advance can be adjusted against the invoice amount.
Follow these steps:
- Create a Sales Invoice or Purchase Invoice.
- Open the invoice.
- Click Get Advance Received.
- ERPNext fetches all available advance payments for that party.
- Select and allocate the required advance amount.
- Save and Submit the invoice.
Allocating an advance payment immediately reduces the Outstanding Amount of the invoice.
5. Benefits of Advance Payments
- Improves cash flow management
- Provides financial security before fulfilling orders
- Reduces collection risks
- Automatically tracks customer and supplier advances
- Simplifies invoice settlement
- Ensures accurate accounts receivable and payable reporting
6. Advance Payments in Reports
Advance payments are reflected in ERPNext financial reports, including:
- Accounts Receivable Report
- Accounts Payable Report
- Customer Ledger
- Supplier Ledger
- General Ledger
This provides complete visibility into outstanding advances and future invoice allocations.
Advance payments remain available for allocation until they are fully adjusted against invoices.
